On Apr 7, 4:00 pm, "Ablang" wrote:
Why do I get wildly different prices when I shop from day to day for
my trip?

Not because of what you wrote - the reason has little to do with
average cost and more to do with marginal cost.

I wish there was a pithy one line answer to this question, but alas,
there
isn?t. With your indulgence, let me boil down a War & Peace sized
answer into
half a page.

Remember, the more you understand how airlines think, the better
chance you have
of getting the best possible deal.

Airlines think like any other profit making organization - maximize
profit.

In general, it costs an airline anywhere from 8 to 15 cents a mile per
seat to
run an airplane. You can see a sample breakdown tracked by the
government below:

http://www.bts.gov/press_releases/20...ts060_06.html#...

The first set of tables depicts the AVERAGE costs and revenues by
available seat miles across all airplanes and all flights. Remember -
AVERAGE. That means every single seat is paying its exact share of
every cost the airline has - fixed costs as well as variable costs.
For example, if there are 100 passengers and a pilot costs $1000, each
passenger "pays" $10 for that pilot to fly that plane. The second set
of data depicts the average revenues per PASSENGER, not seat. Again,
these are averages across all passenger in all seats.

What does this mean for the air travel consumer?

Opportunity.

Let?s use an example from last night?s 8pm U.S. Domestic airfare
filing.

Northwest Airlines filed an airfare from Ft. Lauderdale, Florida to
Portland,
Oregon for $160. At 5,386 miles, those seats are selling at 3 cents a
mile.

You bet they are.

It doesn?t take a rocket scientist to figure out they are ?losing?
money by
selling some seats at that price.

Nope - that's where you are wrong. It does take a rocket scientist to
figure at that at 3 cents a mile the airline is actually making money
on those seats - its to their benefit (profit) to sell those seats at
3 cents a mile rather than fly them empty.

Why do they even offer that low price on some seats?

It fills airplanes and makes them money.

The airlines get nothing for an empty seat, so they are willing to
sell some
seats below cost.

Airlines NEVER purposely sell seats below the marginal cost OTHER than
perhpas as a promotion - just like Tide doesn't sell detergent below
its marginal cost, either. Every seat sold and every box sold makes a
ciontribution to fixed costs and profits - every single one. It HAS
to. If it doesn't, its philanthropy.

The airlines must manage how full they can get a particular plane, and
knowing
some people will pay more than others, they try to manage right mix of
people.

So they aren't selling below cost, now are they. If its cheaper to
fly the seat empty than full, they will fly it empty.

The airlines have price points for a particular flight that can range
from 3
cents to 2 dollars per mile. In general, business and last minute
travelers pay
the hefty amounts while many leisure travelers fill up what?s left at
below
cost.

NEVER BELOW THE MARGINAL COST!

Let me explain.

An airline I havs two kinds of costs - fixed and variable. Fixed costs
happen every day whether they fly that particular seat or not. The
cost of running a reservations center, ticketing, corporate overhead,
depreciation/lease fees, baggage handlers, etc. Imagine if in our
hypothetical airline that flies 1000 flights per week exactly 1000
miles each in planes that have 200 seats each, these expenses cost $15
million per week. Of course, if I fly the planes full or empty or
whether I fly 1000 flights or 999 flights and cancel one, I still will
spend 15 million. These are my fixed costs.

The other set of costs are called variable costs. Again, imagine a
single plane with 200 seats. The variable costs represent the cost of
the fuel, airport landing fees, the cost of a crew, wear and tear on
the airframe, coffee and drinks served, cleaning, and all the things
that happen because I flew the plane. Had the plane stayued on the
ground, these costs would not have occured. That is why these costs
are called the variable costs for the flight. Imagine that these
variable costs are $15,000 to fly it from point A to point B - about
1000 miles apart. That is an average cost of 7.5 cents per seat
mile. The actual marginal cost of the passenger mile is less, though
since on this flight the only additional cost of a seat full versus
empty is the cost of a can of coke and the extra fuel to move 200
pounds of person and 50 pounds of luggage those 1000 miles. Since
fuel is about a third of the total variable cost of an airline and a
can of coke is $1, the marginal cost per seat mile is 2.6 cents. When
the airline sells that seat for 3 cents a mile and the marginal cost
is 2.6 cents a mile, it makes money.

Can it sell all seats at 3 cents a mile and still make a profit? No.
Can it ever sell a seat at less than 2.6 cents a mile and come out
ahead of not selling it? NO.

And that is why airlines sell some seats at lower prices than others.
Because seats with passengers sold at below the AVERAGE cost still
make money.

The AVERAGE fixed cost is $15,000 per flight. The AVERAGE variable
cost is $15,000 sSo, the AVERAGE TOTAL cost of this flight is $30,000,
or about 15 cents per seat mile. The marginal cost is 2.6 cents per
passenger mile.

The airlines spend tens of millions of dollars on computer systems to
analyze
exactly how many seats and at what price they have to sell them to
make the most
profit.

Every time you make a query for a price quote, these computer systems
kick into
action deciding which price point to release for a given flight.

In theory, it should come as no surprise that the quote can differ
every time
you make it.

I apologize for the long-winded answer. But, as one of my favorites,
Paul
Harvey says, ?Now you have the rest of the story?

Paul Harvey closed with "....and now you KNOW the rest of the story!"

My father used to write for Paul so when he's misquoted, you'll
understand I take exception.

js